Pros & Cons of Outsourcing Manufacturing Jobs

by Sam Ashe-Edmunds, Demand Media

Outsourcing has benefits that go far beyond reduced labor costs.

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Outsourcing manufacturing jobs carries with it a negative connotation among consumers that can damage a small business’s reputation. The benefits of outsourcing can be so significant, though, you might find it’s worthwhile to suffer some bad publicity and reduced sales in exchange for the significant costs savings you realize from moving your production. Carefully comparing the costs and benefits of outsourcing your production will help you determine if this strategy is the right move for your company.

Lower Labor Costs

Depending on where you outsource your production jobs, you can reduce your labor costs significantly. This includes not only savings on salaries and hourly wages, but also on payroll taxes and benefits. Overtime laws might also be less stringent than your locale, allowing you to add a shift or offer workers longer hours without increasing your hourly pay rate. You might also be able to reduce your costs by paying an outsourced manufacturer by pieces produced, helping you better control your costs. You are less likely to face a union in many foreign countries, reducing problems such as strikes, contract negotiations and difficulty in terminating poorly performing workers.

Fewer Regulations

Businesses outside the U.S. are often subject to fewer regulations regarding labor conditions, use and disposal of materials, right-to-work laws and other areas of manufacturing that raise the cost of producing goods in more developed and regulated countries.

Lower Real Estate and Plant Costs

You will save considerable money on outsourcing if you reduce or eliminate your real estate, building, maintenance, property taxes, insurance, security, utilities and other operating and overhead costs. These savings alone might be enough to make outsourcing your manufacturing even if you don’t reduce your labor costs.

Effects on Sales, Pricing and Margins

Lowering labor, operating and overhead costs through outsourcing allows you to maintain or lower your current price levels. This can lead to increased sales and the ability to take market share from your competitors. Based on the savings you realize from outsourcing, you can lower your prices and still increase your profit margins.

Increased Operating Capital

When you outsource, you reduce your expenses, and if your sales remain the same, you’ll have more money to spend on marketing, debt reduction, research and development, headquarters salaries and other areas that can help improve your bottom line.

Reduced Quality

When a small business outsources manufacturing, it has to consider its ability to oversee and regulate the production process taking place at its contractor’s location. Unless you can afford pay one of your own employees to be on site, every shift, you won’t be able to examine and control the quality of your product. When an outsourcer produces an inferior product, it might take you weeks or months to find this out, based on how long it takes to ship finished product to you.

Bad Public Relations

Outsourcing manufacturing often carries with it a stigma in the eyes of consumers. While some manufacturers provide living wages and safe working conditions to outsourced workers, consumers might resent that you are taking jobs from their communities and sending these jobs overseas. Outsourced jobs are often performed by workers who are underpaid, physically abused, overworked or work in dangerous facilities. Some countries allow those companies that outsource to them to pollute the environment. When these conditions are found, consumer groups often publicize this information and call for boycotts.

About the Author

Sam Ashe-Edmunds has been writing and lecturing for decades. He has worked in the corporate and nonprofit arenas as a C-Suite executive, serving on several nonprofit boards. He is an internationally traveled sport science writer and lecturer. He has been published in print publications such as Entrepreneur, Tennis, SI for Kids, Chicago Tribune, Sacramento Bee, and on websites such Smart-Healthy-Living.net, SmartyCents and Youthletic. Edmunds has a bachelor's degree in journalism.

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